Graner: No need for hysteria over proposed soybean tariffs
There seems to be a grand misunderstanding on the current tariffs that are being discussed in what is an impending trade war largely being promoted by Democrats seeking a political advantage. The hysteria is ill-advised and counter-productive creating unnecessary volatility.
First, you must understand, there is no trade war starting. We've been in a trade war for 20 years and we have chosen to accept losing it until now. The can was kicked down the road until now, and the current president chose to pick up the can and deal with it.
When it comes to soybeans tariffs, China loses big time if it dares to implement them. The underlying problem with soybeans is that there are not enough areas to source from to make it problematic enough to hurt U.S. prices if China chose not to buy from us. Three main countries in the world sell beans--U.S., Brazil and Argentina. Argentina just experienced a devastating drought causing losses of over 30 percent, leaving Brazil and the U.S. as the only real providers.
China buys 62 percent of all the soybeans marketed in the world. Of that amount they buy, 50 percent comes from Brazil, 40 percent from the U.S., 8 percent from Argentina, with 2 percent from other countries. For China to avoid the U.S. causes the sole providers in South America to make up the difference, the logistics and available supplies are not there.
It's not like they can go to other areas the world like Russia, Ukraine or Australia to pick up supplies as you have with wheat. They only have South America, and they can't handle the exports in a timely manner. I've been advising clients that beans will inflate substantially in South America, throwing support to U.S. bean prices to at least keep prices stable. With China capturing South America production, forcing them out as a provider to the world, we will have soybean buyers we have not seen in a long time that are now displaced. Their buying will support U.S. prices which will now be at a substantial discount to the newly inflated South American prices. Just on the intentions of tariffs, as of April 9, South American beans have skyrocketed over $1.50 or more over U.S. prices.
Current U.S. prices reflect some of the best price levels we've seen in two years. Proof that China shoots its own foot and harms its consumers if it throws tariffs on U.S. beans. Pres.
Trump negotiates in a grand way; the Chinese are desperate to find a grand response, hence their threats. However, given the fact their economy thrives because of ours, Trump holds the high cards in this game and will likely get a resolution before tariffs become an issue.
Graner is president of Heartland Investor Services, a commodity trading firm based in Bismarck.